Global Watch - The Gold Forecaster

By: Julian D. W. Phillips | Sat, Nov 19, 2005
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HIGHLIGHTS in "Global Watch - The Gold Forecaster"
Silver - COT, Gold : Silver Ratio EDR.V, SSRI, PAAS, SIL, HL, CDE / Platinum.
Portfolio Update: Taking Huge Profits in USGL / Buying Two New Equities

- Short-term forecasts across the Board!
- Comex positions
- Last week's gold sales under the CBGA
- Germany is NOT selling
- Central Banks views on gold reserves
- Indian Demand this week
- Precious Metal Shares versus the Metal
- The Oil crisis
- Portfolio Progress
- Prospects for the US $ Short & Long-Term / DJIA / 10-Year Bond / CRB / Gold : Oil Ratio
- Technical Analysis of the Gold Price: Long / Short term in the U.S. $
- International Gold Markets
- € and Yen Gold Hit New Records!

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Portfolio Alert:
We are making our first sell recommendation in our portfolio (see below - for subscribers only). Our speculative investment into USGL (US Gold Corp) several months ago has paid off exceptionally well with returns now reaching in excess of 600%!! Although momentum remains strong at the time of writing, we would like to secure these profits, which can be placed into good work with other speculative equities.

Trade Alert -- BOOK PROFITS: USGL Return 623% Entry Price: $0.44 / Sell Price: $3.18

Last week's Gold Sales - [under the Central Bank Gold Agreement.]
By the end of last week another, approximately 4.01 tonnes of gold were sold under the Central Bank Gold Agreement, for the week. This brings the total sold to date from the 27 th September 2005 to 70.26 tonnes approximately.

If the signatories to the agreement continue selling at this pace they will run out of this year's quota by the middle of August 2006, creating the same market conditions as we saw this year, at the same time next year.

If they sell the full 500 this year this will leave only around 379 tonnes of gold to be sold in the third year of the agreement, after which their gold selling will cease for the remaining two years of the agreement!

We forecast that the Central Banks committed to selling gold will continue to do so until their forecast sales are complete. We can see no reason why they should not complete the selling at the pace they are presently doing. It will become clearer in the weeks ahead what the year's pattern of selling will be.

Germany is NOT Selling!
Last week we gave the picture on Germany's potential gold sales ahead of a year-end announcement. As you now see it was less than a week later that Germany confirmed our view.

[We don't like to boast, but we mention it because you must know that we do our best to be perceptive and understand our subject so as to give you value.]

Bundesbank president Axel Weber indicated yesterday that the central bank will not give in to political pressure to sell part of its gold reserves.

Incoming Finance Minister Peer Steinbrueck had said that he hoped to convince the Bundesbank to sell 120 tonnes of gold to finance a 'future fund' that will promote research and education projects. [One must remember that that was also put forward previously by the former Finance Minister to the former Bundesbank President].

That the issue has risen again would be puzzling, because of the obstacles in the way. The former Bundesbank President was dispensed with in the process [ostensibly because he allowed a bank to pay a hotel bill for him and his family]. Steinbrueck said he will seek to discuss the issue with the Bundesbank and the possibility of the sale of gold reserves. But Bundesbank President Weber pre-empted such a meeting referred to a German law that puts all decision-making on gold reserves in the hands of the Bundesbank.

"I assume that we can agree to respect each other's responsibilities," Weber is reported to have said.

With Herr Weber having painted the line on the road, perhaps the matter will be dropped?

In terms of the Central Bank Gold Agreement , the Bundesbank has an option to sell up to 100 tonnes of gold per year, or a total of 500 tonnes by 2009. If this option is not taken up then the amount "budgeted by the agreement to be sold will have to drop by 500 tonnes from 2500 tonnes to 2000 tonnes in the 5 year period of which one year has already passed with the full 500 tones sold. This has left 1500 tonnes of the proposed "ceiling" remaining to be sold.

Of course other banks may take up this shortfall, that have not notified the market of their intention to do so, but it seems most unlikely that there could be sufficient of these unexpected sales to fill the gap left by Germany.

Bear in mind that the full 'ceiling' level of 500 tonnes a year is not a commitment to sell that amount, only that it must not rise above that level. The amount of 'committed' gold for sale is as the table shows. With Germany stepping away, this amount as of last week was down to 879 tonnes remaining to be sold by 2009. With Germany's comments above, will more step away and just as importantly, will uncommitted, but planned sales be withdrawn too? For sure, the Central Bank Gold supply is important to the market. As the market swings from a surplus to a deficit the removal of any Central Bank's sales will have a greater and greater impact on the situation and the gold price.

We are beginning to hear more and more talk of Central Banks such as Argentina, Venezuela, Russia, South Africa and Korea starting to buy gold.

Indeed, one of Russia's Central Bankers has repeated the statement from the bank that a 10% level of gold reserves in Russia's Gold and Foreign Exchange reserves "would be appropriate". However, a previous statement to that effect was made a couple of years ago, so we do not expect a buying programme to be commenced shortly by Russia.

If they were to acquire more gold for their reserves, it would most likely be by way of paying local Producers of gold [183 tonnes of gold a year] for their newly produced gold and removing it from the global market into their Reserves.

With their Gold Reserves up at 500 tonnes and their estimated foreign exchange reserves at the end of the year $180 billion, at a gold price of $470, to take the gold content of the reserves to 10% would mean they would have to buy another 691 tonnes or the 3.78 years of Russian gold supply to the market.

If they are as good as their word, we would expect them to take over a decade and more, so as to contain the impact on the gold price? But if diversification really is their aim, to do it quickly would make more sense?

Again, with the demand and supply balance moving into a deficit situation such a move will add to the upward pressure on the gold price considerably!

As with South Africa, the Central Bank tendency could easily be that they can add to gold reserves at any time. Hopefully, they will take a lesson from the Gold Standard days, when Britain felt the same over their colony called South Africa. When push came to shove, the need for gold in the short-term outran the supply reaching Britain. It is far better to get it into reserves, even as a buffer stock, for easy access?

U.S. Dollar Gold Price
Gold Heading for $500 (and beyond)!

The long-term uptrend channel remains intact and healthy as we end the week with near 18-year record prices! The top of this channel cross around the $500 price mark, as we now sit several dollars from 1987 closing highs around $500 an ounce!

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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.

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